403(b) Deselected/Frozen/Terminated Plan, Distributable Event, In-Service Distribution, & Direct Rollover WITHIN Same Employer (NOT An "Exchange")

[Guest willwillie]

My 501©(3) employer has two 403(b) plans/programs: (1) The first plan (employer-sponsored, and fund sponsor vetted by employer) is a non-ERISA 403(b) TDA plan begun about 1971 or earlier with an insurance company. There is no Plan document--just individual annuity contracts ("flexible premium annuity"), with addendum updates as mandated by the Internal Revenue Code. As a result of a salary reduction agreement with my employer back in 1971, my employer remits to the insurance company my monthly contribution of pre-tax dollars; I have not contributed after-tax dollars to this plan. Also, there are no employer contributions to this plan. My employer states it is a "church" plan [a 403(b)(1)]; no Form 5500 has been filed on an annual basis for this plan. After some 38 years or so, my employer is stopping/deselecting/freezing/terminating (employer FAILS to explain precisely what mechanism is being used for stopping the plan: deselection, freezing or termination) this non-ERISA 403(b) TDA plan. I'm not sure, but I may be the sole remaining participant in this plan. I am still working and am over age 59 1/2; thus, my age qualifies me for an "eligible rollover distribution". My non-ERISA 403(b) TDA contract allows for a distribution after age 59 1/2 and allows for a "direct rollover (trustee-to-trustee)" to an "eligible retirement plan". The non-ERISA 403(b) TDA contract specifies that "a tax-deferred annuity as described in Section 403(b)" is one such "eligible retirement plan". The non-ERISA 403(b) TDA contract only mentions "direct rollovers (trustee-to-trustee)" as a mechanism for moving an accumulation from its contract.

(2) The second plan (employer-sponsored, and fund sponsor vetted by employer) is a ?non-ERISA/ERISA? 403(b) TDA plan [403(b)(1)] begun about 1976 with a financial institution other than the insurance company. [i've received contradictory information from the financial institution and my employer as to the non-ERISA/ERISA status of this second plan. I have 2 letters from the financial institution that state that the (second) plan is subject to ERISA. On the other hand, as of December 31, 2009, my revised Summary Plan Document (for the second plan) states that, in fact, this second plan is a non-ERISA 403(b) TDA and is a "church" plan as well! I contacted my employer's former CFO (who, PRIOR TO 2009, had always filed Form 5500s ANNUALLY for years and years for this second plan) and asked her why she filed Form 5500 for the second plan. She responded she did so because she thought the plan was subject to ERISA! I'm beginning to wonder if both the current CFO and the former CFO of the company for which I have been working the past 25+ years REALLY KNOW if this second plan is subject to ERISA or not! Why would a Form 5500 be filed annually PRIOR TO 2009 for a non-ERISA 403(b) TDA "church" plan? If this second plan is a non-ERISA 403(b) TDA "church" plan, why didn't the IRS return the FILED Form 5500s back to the company? Does the IRS allow employers to file Form 5500s as a "HEDGE" against the POSSIBILITY that the employer's plan MIGHT BE an ERISA 403(b) TDA? I'll always have big questions in my own mind about the non-ERISA/ERISA status of this second plan!] A Plan document and Summary Plan Description for this ?non-ERISA/ERISA? 403(b) TDA plan has been in existence for years and years. Since about 1976, I have been contributing pre-tax dollars to this plan as a result of a salary reduction agreement with my employer; I have not contributed after-tax dollars to this plan. There are employer matching contributions to this plan (up to a certain percentage) in addition to the employer contributing a "free" 2% of my salary without a 2% match from me. A Form 5500 is filed annually for this plan (short version; few schedules). My employer is keeping this ?non-ERISA/ERISA? 403(b) TDA plan viable. The ?non-ERISA/ERISA? 403(b) TDA plan only accepts rollovers of "eligible rollover distributions" and will only accept either a "direct rollover (trustee-to-trustee)" OR an "indirect/60-day rollover". Thus, the only way I can get my money from the non-ERISA 403(b) TDA plan into the ?non-ERISA/ERISA? 403(b) TDA plan is by doing a "direct rollover (trustee-to-trustee)" OR an "indirect/60-day rollover" of an "eligible rollover distribution".

Question:

Am I allowed to execute, specifically, a 403(b)-to-403(b) "direct rollover (trustee-to-trustee)" in order to get the "eligible rollover distribution" from my employer's non-ERISA 403(b) TDA plan (which is being deselected/frozen/terminated) to my employer's ?non-ERISA/ERISA? 403(b) TDA plan? THE PROBLEM IS, the form given to me by the insurance company is "cleverly" designed and steers me towards an "indirect/60-day rollover" (where I would have to come up with $47,200 of my own money in order to have a "complete/full rollover" of monies due to the 20% of the accumulation being removed by the insurance company for tax purposes) with no mention whatsoever of a "direct rollover (trustee-to-trustee)" option to another 403(b) annuity contract, which would cost me nothing! What about IRC 401(a)(31) and 403(b)(10) and 1.403(b)-2 and EGTRRA and being sent a Section 402(f) notice (which I never received!)? It's almost as if the insurance company wanted to make the rollover "difficult/impossible" by not giving me the 402(f) notice--I'm sure they weren't happy to say "bye bye" to several hundred thousand dollars! When I challenged the insurance company about their rollover form not making it explicit that I had the "direct rollover" option to another 403(b) annuity, they backed down and said that the form they had sent me was out of date and that I could "adjust" the form. The problem with that reply was that the form had just been revised -- (there was a very recent revision date in the lower left corner of the form) -- prior to my "direct rollover," so their "excuse" did not pass muster! As it was, in addition to filling out the "Rollover/Transfer" form in a manner that reflected a "direct rollover," I also sent a clear and concise letter to the insurance company and the financial institution informing both of my "direct rollover" intentions. This letter (2 copies, each copy addressed to both the insurance company and the financial institution) accompanied the "Rollover/Transfer" form. Had I not done some research on my own, my husband and I might not have been able to pull off this "direct rollover" transaction. Frankly, the entire rollover experience was nothing short of a NIGHTMARE . . . . my employer gave me NO help, the first attorney I hired was of very little help and let go, a second attorney (with considerable difficulty) was able to pry out some information from the insurance company (that wanted to hang onto the accumulation my husband and I wished to roll over), and my financial planner was totally unfamiliar with 403(b) products in general. I would hate to tell you folks what this transaction cost me in terms of fees to the attorneys and financial planner! FOR THIS REASON I HAVE GONE INTO A VERY DETAILED ACCOUNT OF THIS TRANSACTION, HOPING THAT IN SOME WAY I CAN IMPART SOME INFORMATION THAT MIGHT BE USEFUL TO THE READERS OF THIS SITE.

[Guest willwillie]

Willwillie working on own reply: My employer's ?non-ERISA/ERISA? 403(b) TDA plan HAS ACCEPTED the "eligible rollover distribution" from my (same) employer's non-ERISA 403(b) TDA plan. I have requested the ?non-ERISA/ERISA? 403(b) TDA financial institution to state in writing precisely what kind of transaction this is -- they have characterized it as a "direct rollover" based on a "distributable event" (over age 59 1/2). It should be noted that I filled out all forms on the basis that I was executing a "direct rollover (trustee-to-trustee)". The "distributable event" used was the fact that I am over age 59 1/2 (age 78; however, still employed full-time). Neither the insurance company's non-ERISA 403(b) TDA contract/addendum documents nor the employer's "Plan" document (which lists, as a fund sponsor, only the financial institution offering the ?non-ERISA/ERISA? 403(b) TDA) allow for "contract exchanges" (i.e., non-reportable, non-taxable "direct trustee-to-trustee" transfers of money between fund sponsors listed in an employer's "Plan" document [BOTH FUND SPONSORS, in their contract language, MUST GIVE PERMISSION for the "contract exchange"]). Further, the insurance company, as a fund sponsor, stands "outside" of my employer's "Plan" document while the financial institution, as a fund sponsor, stands "inside" of my employer's "Plan" document. That is, the non-ERISA 403(b) TDA "church" plan did not require a plan document prior to 1/1/2009, while the ?non-ERISA/ERISA? 403(b) TDA plan has had a plan document since inception (1976). That is, these are two different types of 403(b) programs/plans. It is my understanding that if I had not had a "distributable event" my non-ERISA 403(b) TDA accumulation would have had to remain with the insurance company in a ?"frozen account"? in order not to be taxed (but earning interest and annual dividend) -- until a "distributable event" actually occurred which would allow me to take a distribution and roll it over to my employer's other fund sponsor while still working (can't roll over to an IRA because of required minimum distributions at age 70 1/2 -- I am age 78). I'M KEEPING ALL PAPERWORK INVOLVED IN THIS TRANSACTION.

One other thought: for a "contract exchange" to occur, you need PERMISSION FROM BOTH FUND SPONSORS AND "contract exchange" wording has to be in both contracts. So, if you are under age 55 and want to transfer money from one FUND SPONSOR TO ANOTHER FUND SPONSOR you could try and use the "contract exchange" method for doing this--but again, you need PERMISSION from both FUND SPONSORS and not all FUND SPONSORS will agree to this type of transaction. IRS regulations generally allow for partial/full distributions from 403(b) contracts AFTER AGE 59 1/2 (i.e., age 59 1/2 IS a "distributable event").

When I spoke to the insurance company over the phone they said to me that I could not ROLL my money from their 403(b) annuity product into a "LIKE MARKETABLE PRODUCT" (meaning into another 403(b) annuity product provided by another company). I reminded them that I was OVER AGE 59 1/2 AND BY IRS REGULATIONS (AND WORDING IN THE INSURANCE COMPANY'S ANNUITY CONTRACT ITSELF, MIND YOU) I WAS ENTITLED TO ROLL MY MONEY OVER INTO ANOTHER 403(b) annuity product provided by another financial company (or a 401K product, or an IRA product) if I so desired because I exceeded age 59 1/2. I informed the insurance company that what we were dealing with here was a "distributable event" due to my age--not a "contract exchange" transaction wherein PERMISSION had to be obtained from BOTH the insurance company and the financial institution. In other words, I told the insurance company they COULD NOT PREVENT ME from doing a ROLLOVER into another 403(b) annuity product provided by another company.

Rollovers and "contract exchanges" are two different ways of transferring money between FUND SPONSORS--each predicated on different rules/regulations.

Anyway, to make a long story short, the insurance company in a firm and unfriendly tone of voice told me that they would have to have "company attorneys review my request" (trying to frighten me, I guess). My response to them was a very hearty "you just do that." The lesson learned here is that even if you are entitled to do a rollover because you have a "distributable event," you may still run into difficulties with the company holding your funds releasing those very funds to another company. SO DO YOUR HOMEWORK AND BE PREPARED! First, I did quite a bit of reading online (and books) to determine the differences between/requirements for a "contract exchange" VERSUS a "rollover." As mentioned above, I got myself an attorney prior to doing the rollover (actually, I started with one attorney who, it turned out, was far too "cozy" with the insurance company--so, I dismissed the first attorney and got myself a second impartial attorney who would look out for my interests), and I also (prior to the rollover) gave a heads up to the financial institution that would be receiving the "eligible rollover distribution" that the insurance company would try and drag this transaction out as long as was feasible for them to do so. ALL FORMS AND DOCUMENTS WERE MAILED (VIA OVERNIGHT, CERTIFIED MAIL WITH RETURN POSTCARD ACKNOWLEDGEMENT OF RECEIPT SENT BACK TO ME BY THE RECIPIENT) TO THE FINANCIAL INSTITUTION THAT WOULD BE RECEIVING THE "ELIGIBLE ROLLOVER DISTRIBUTION"--NOT TO THE INSURANCE COMPANY, WHO WOULD LIKELY "HOLD THINGS UP/DRAG THINGS OUT." ACTUALLY, THE INSURANCE COMPANY WANTED ME TO MAIL ALL THE FORMS TO THEM FIRST, BUT I KNEW IN MY HEART OF HEARTS THAT MIGHT PROVE TO BE DISASTROUS. PRIOR TO THE ROLLOVER, I CONFERRED WITH THE FINANCIAL INSTITUTION THAT WOULD BE RECEIVING THE "ELIGIBLE ROLLOVER DISTRIBUTION" AND IT WAS AGREED BETWEEN US THAT THE FINANCIAL INSTITUTION WOULD DO THE "HEAVY LIFTING" AND PROD THE INSURANCE COMPANY TO COMPLETE THE TRANSACTION. THUS, I WOULD NOT BE PUT INTO THE POSITION OF HAVING TO CONTINUALLY BEG THE INSURANCE COMPANY TO COMPLETE THE ROLLOVER.

[WDIK]

Do that crazy hand jive, Willie!